by Addison Wiggin & Ian Mathias
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What MBIA, Ambac, Exxon Mobil and GE still have in common… and why it moved markets
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Home sales hit new lows, foreclosures new highs… where the fallout is the worst
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Jim Rogers on the U.S. recession… and how “it is going to get worse”
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A financial sector IPO we wouldn’t dare bet against
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Famous oil investor bets on $85 oil… Kevin Kerr on why you shouldn’t ride his coattails
Bond insurers Ambac and MBIA will keep their coveted AAA credit ratings, announced Standard & Poor’s yesterday… confirming the corruption and consistent inaccuracy in the ratings industry. Debt issued by both of these insurers will maintain the same credit rating as bonds from the likes of GE and Exxon Mobil… at least for now.
Ambac stock rose 13% on the news. MBIA shot up 17%.
Execs at MBIA were so emboldened by their AAA rating, so sure of their company’s ability to make money and pay off debt, that they decided to cut their entire dividend yesterday. The move will save MBIA some $174 million. Apparently, the $2.6 billion in recent stock and bond sales coupled with a $2.5 billion private equity injection wasn’t enough capital to let the MBIA elite sleep at night.
MBIA — a company with a $1.8 billion market cap — insures over $670 billion in bonds.
Markets rejoiced on the AAA news too. The Dow and S&P 500 furthered the day’s gains to close up 1.5% and 1.3%, respectively.
Existing home sales fell for the sixth month in a row in January to a new record low. Such sales fell 0.4% last month, to an annual rate of 4.8 million units sold, reports the National Association of Homebuilders yesterday. That’s the slowest pace since at least 1999, when the NAR started keeping track.
For what it’s worth, sales of existing homes are now down an amazing 20% from their 2005 high. The inventory of unsold homes also rose in January, by 5.5% to a 10.3-month supply, just short of a multidecade high. For perspective, during the peak of the housing boom in 2005, inventory fell as low as a four-month supply. As of January, over 4.2 million homes were for sale in the U.S.
What’s more, the national median home price fell yet again, now down to $201,100. This time last year, the average existing home fetched nearly 5% more… ouch.
Foreclosure filings skyrocketed 57% in January, year over year, reports RealtyTrac this morning. 233,001 homeowners filed in January, up 8% from December. Of those homes, over 45,000 were repossessed by loaners… in January alone.
Nevada, California and Florida led the way last month. An incredible one in every 167 homes in Nevada was in some stage of foreclosure during the month.
Not surprisingly, home wares supplier Lowe’s turned in a doozy of an earnings report yesterday. Fourth-quarter profit fell an impressive 33%. Same store sales dropped 7.6% during the last quarter of 2007, and the company said sales will continue to fall at least 5% in the current quarter.
If you can see a bottom to this whirlpool… you’ve got better eyes than we do. And better than this guy too:
“The U.S. is in recession,” Jim Rogers told reporters on a visit to Dublin yesterday. “It is going to get worse. They [the U.S. central bank] are printing money and are trying to prevent the recession — they are putting on Band-Aids,” he said.
“The Japanese did it and the Japanese still have not recovered 18 years later. As long as the [U.S.] central bank and the federal government keep making the mistakes, you will have a longer period of slowdown and it will be perhaps one of the worst recessions we have had in a long time in America.”
“History shows,” Rogers wrote in the foreword to our book back in 2002, “people who save and invest grow and prosper, and the others deteriorate and collapse.
“Artificially low interest rates and rapid credit creation policies set by Alan Greenspan and the Federal Reserve caused the bubble in U.S. stocks of the late 1990s… Now policies being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble.
“When those bubbles burst, it’s going to be worse than the stock market bubble. No one, of course, wants to hear it. They want the quick fix. They want to buy the stock and watch it go up 25%… because that’s what they say on TV.”
“As of right now, U.S. economic growth is at zero,” said Alan Greenspan yesterday while at a conference in Saudi Arabia, offering proof that irony as an art form is not dead. “We are at stall speed. Recovery might take longer to emerge than it usually does.”
Visa unveiled plans to go public yesterday. In an SEC filing, the company said it would offer up to 446 million shares at $37-42 a pop. Thus, the company may raise up to $19 billion — the largest IPO in history by nearly a factor of two. AT&T’s 2000 IPO scrounged up a measly $10 billion.
Visa will be the last major credit card company to go public. While we dare not speculate on the short-term outlook of the IPO… if MasterCard’s recent offering is any indication, Visa’s will be the buy of the year:
There is no exact date set as to when Visa will begin trading, but rumor has it ticker “V” will be tradable by March 20.
Two of the nation’s largest 401(k) stewards saw frightening retirement withdrawals and loans in the fourth quarter. Fidelity Investments, the U.S.’s largest mutual fund provider, said yesterday that 401(k) withdrawals jumped 17% in December, the biggest decrease in the company’s history.
Great-West, which manages 3.5 million retirement accounts, also recently reported a 14% yearly increase in 401(k) withdrawals in 2007.
The dollar index fell again yesterday and overnight, plunging half a point this morning alone. Now barely clinging to a score of 75, the index is just less than a point from a new record low.
“There are so many people bearish on the dollar right now, including me,” added Jim Rogers in his speech in Ireland. “Normally, when that happens, something comes along to cause a rally, even if it is a bear market.” Despite a possible short-term rally, Rogers maintained his bearish position on the greenback, saying the dollar was set to “go down a great deal.”
“The dollar is going to lose its status as the world’s reserve currency,” Rogers asserted. “That is in the process of happening.”
The euro now trades on the high end of $1.48, less than a cent below its all-time high from November. The pound ticked up another penny, to $1.97. The loonie shot right through parity to $1.01, and the yen stood still at 107.
Wheat surpassed $12 per bushel for the first time yesterday in Chicago. Wheat for May delivery shot “limit up” 90 cents, or 8%, in after-hours trading — wheat’s largest single-day gain since October 2002.
While American wheat inventories remain at 1948 lows, we learn today that the U.S. export sales are up 56% since June compared with the same period last year. Yikes…
Light, sweet crude trades for 99 bucks this morning…off $1 from yesterday’s high.
“I think oil’s going to back off,” pontificated the legendary T. Boone Pickens last week, “The weakest quarter is the second quarter. We’ll drop $10 or $15 a barrel in the second quarter. I think we’ll be back above $100 in the second half of the year.”
The legendary energy investor told CNBC that he has taken on short positions in both light, sweet crude and natural gas.
“The risks of shorting this market right now are extreme,” advises Kevin Kerr, “and unless you have very deep pockets, let’s just say it could be very painful.” Just in case you’re thinking about riding T. Boone’s coattails on this trade, our Maniac Trader has a few words of caution:
“Sure, a slowdown in the global economy is bound to have some impact, and I am not discounting the potential for some money to be made on the short side. I just don’t have enough money to do it. I mean, a guy like T. Boone can afford to ride a crude position back down to $50 and still be long; I cannot.”
For Kevin’s latest resource buy recommendations, check out Resource Trader Alert.
Gold traders took profits yesterday as the market rallied, sending spot prices as low as $927. As we write to you this morning, an ounce of the stuff sells for about $935.
“Neither I nor my colleagues are economists,” writes a reader in response to yesterday’s discussion of manufacturing in the U.S., “but for years, we’ve been scratching our heads wondering how the U.S. economy can survive if it doesn’t make anything. A service economy is fine if it has a production economy to serve. This may be oversimplistic, but without a production economy, what is it serving?
“We can serve the production economies overseas, but sooner, rather than later, they will figure out how to service their own economies and won’t need us. It appears that the consumer classes in China and India, et al., are increasing exponentially. Soon they will arrive at critical mass — i.e., their middle/working class consumers will outnumber our middle/working class consumers. And once this happens, the USA will be expendable. They will no longer need to depend on the U.S. markets to buy their stuff. They will have their own markets to do that.
“I wish I could see a flaw in this thesis, but I can’t. In other words, I don’t see any way of avoiding our inevitable status in the not-too-distant future as a second-tier country, much like European countries were to us in the 20th century. Please show me how I’m wrong.”
The 5 responds: Sorry… no can do.
“I have been talking about the U.S. sending too many jobs overseas and out of this country for over a year now,” adds another. “Past and present trade agreements have allowed this situation to develop and continue. We have lost all too many blue-collar jobs, union jobs, foundries, mills, plants and factories — the type of jobs in which many could gain employment, prosper and raise a family. Outsourcing of U.S. white-collar jobs should be made illegal, as far as I am concerned. I fear for the future of this nation.”
The 5: One of your editors lives in a Baltimore complex called Clipper Mill — a former manufacturing plant and iron foundry, one of the largest on the East Coast. Baltimore’s first streetcars were built there, along with the columns that support the dome of the U.S. Capitol building.
After accidentally burning to the ground 10 years ago, nearly the entire lot was rebuilt into swanky hipster condos and apartments. The few little remnants that remained of the old mill were used to decorate this:
Why rebuild a factory when a there’s room for a pool?
“Being in the casting and machining business since the great 1994 renminbi devaluation has been rough,” writes a reader. “Our large customers, CNH, ITT, etc., threatened and did send our parts overseas to be manufactured. As a matter of fact, I sensed a perverse joy on the part of purchasing agents as they gleefully squeezed domestic industry and extolled their new Oriental partners’ ability to provide cheap parts and made their own people redundant, and therefore showed an increase in ‘productivity.’
“To counteract this, we started a China joint venture that has had high profit margins due to the currency valuation and tax/export rebates and income tax incentives. That all ended last month. Prices and costs for iron castings went up between 20-30% as the Chinese government tried to slow the growth of energy- and material-intensive industries.
“Three years ago, over half our industry capacity in the U.S. was in bankruptcy. Customers such as Caterpillar are finding a U.S. capacity shortage, as parts are now cheaper right at home than elsewhere. What did they expect?
“Prices are going up — fast.”
Best regards,
Addison Wiggin
The 5 Min. Forecast
P.S. Don’t forget… you’ve got just one more day to take us up on our Strategic Short Report trial offer. Dan Amoss’ initial subscribers just pocketed 173% gains on their Systemax puts, and his latest recommendation — shorting a famous U.S. homebuilder — is still below his buy-up-to price. Get your free three-month subscription here.